Lafarge published Q1-22 unaudited financials last week Thursday (March 21), which showed that the company delivered an impressive PAT growth of 92.2% y/y while EPS printed NGN1.09/share (+92.2% y/y). The strong growth in earnings was underpinned by the combined impact of topline growth, higher margins and a steep deceleration in finance cost.
Revenue grew by 26.8% y/y in Q1-22 on the back of improvements in cement sales (+26.0% y/y; 97.1% share of revenue) and aggregate and concrete sales (+62.3% y/y; 2.9% share of revenue). Though management is yet to provide information on the driver of the cement sales growth, we believe the high increment in prices (+18.8% y/y) implemented in the prior year supported topline growth. We also think private sector demand for cement remained healthy in the quarter, given the strong rebound in the real estate sector (growth of 2.3% in 2021FY vs contraction of 9.2% in 2020FY).
Gross margin expanded marginally by 43bps to 53.5% in Q1-22, following the slightly higher increase in revenue (+26.8% y/y) compared to the cost of sales ex-depreciation (+25.6% y/y). The expansion in gross margin combined with efficiency gains underscored by the improvement in OPEX/sales ratio (21.7% in Q1-22 vs 23.1% in Q1-21) paved the way for a 31.5% y/y growth in EBITDA. Sequentially, EBITDA margin strengthened to 32.1% in Q1-22 (Q1-21: 30.9%).
Earnings were also lifted by a steep decline in finance cost (-67.9% y/y in Q1-22), reflecting gains from the reduction in gross debt (-54.7% y/y to NGN24.64 billion in Q1-22 vs NGN54.38 billion in Q1-21), given that LAFARGE successfully redeemed a NGN34.1 billion bond in the prior year. With leverage (debt/equity) of 0.06x as of Q1-22 and Management guiding that there are no plans to tap into debt financing in the short term, we see scope for continued support to earnings from lower finance charges.
Overall, PBT grew by 68.1% y/y to NGN21.46 billion in Q1-22. Despite the moderate increase in tax expense (+7.5% y/y to NGN3.91 billion in Q1-22), PAT grew faster by 92.2% y/y to NGN17.56 billion.
Observers like that the company kicked off 2022 with double-digit growth in the bottom line; a trend that we had observed since Q3-19 when the margin-dilutive South African subsidiary was sold.
